The palm oil industry has been at the center of a global environmental debate for years. Renowned for its efficiency and versatility, palm oil is a key ingredient in an extensive range of products, spanning from food, cosmetics, and detergents to biofuel. Cultivated only in tropical regions, the oil palm tree produces high-quality oil primarily used for cooking in developing countries.
The versatility and high yield of palm oil have made it a globally sought-after commodity. It helps propel Indonesia into a position of economic prominence in the palm oil market as the country produces over 30 million tons of palm oil annually, accounting for 4.5% of its GDP and providing employment for 3 million people (UNDP: 2019). This growth has largely been driven by international demand for palm oil products. As the world's largest crude and refined palm oil exporter, Indonesia exports over 58% of its production and contributes 59% of global exports (Trase. Earth: 2020).
Behind the economic benefits lies a trend that highlights significant environmental impacts. In 2023, Indonesia experienced a 36% increase in deforestation due to palm oil, with 30,000 hectares cleared compared to 22,000 hectares in 2022. Although there was an increase, deforestation due to palm oil is still much lower than in 2012 when 227,000 hectares of forest were converted to plantations. This indicates that while recent trends are concerning, overall progress has been made in reducing the rate of deforestation over the past decade. (Mongabay: 2024; Nusantara Atlas: 2024).
This issue calls for fostering collaboration and involving various stakeholders to combat the challenges regarding deforestation and gas emission issues. This approach should include governments, businesses, and technology providers working together.
Technological Innovations and The Need for Traceability
Advancements in technology are playing a pivotal role in making palm oil production more sustainable. In response, the industry is increasingly turning to technological innovations to promote sustainability. Among these innovations, traceability digital solutions stand out as a transformative force, offering unprecedented transparency and accountability in the palm oil supply chain.
Traceability is the ability to track palm oil's journey from plantation to end product. This is crucial for ensuring that palm oil is sourced sustainably, free from deforestation, and produced under fair labor conditions. Consumers, regulatory bodies, and companies are demanding higher levels of transparency to verify the sustainability credentials of palm oil products.
Advancements in technology, particularly in traceability digital solutions, are transforming the palm oil industry. By providing transparency, improving compliance, and enhancing consumer confidence, these innovations are crucial for making palm oil production more sustainable. As the industry continues to adopt and refine these technologies, we can look forward to a future where palm oil production aligns with environmental stewardship and social responsibility.
The European Union Deforestation Regulation (EUDR), A Catalyst for Sustainable Palm Oil Production
In recent years, the global push for sustainability has led to significant regulatory changes to protect the environment. One of the most impactful is the European Union Deforestation Regulation (EUDR). This regulation aims to reduce deforestation associated with EU consumption by imposing strict due diligence requirements on companies importing certain products into the EU. The EUDR represents a significant step towards promoting sustainable palm oil production and ensuring that products consumed in the EU do not contribute to environmental degradation.
Under the EUDR, companies are required to comply with strict legality and sustainability requirements. This means that products entering the EU market must not originate from land that has been deforested or degraded. To ensure compliance, companies must conduct thorough due diligence to verify that their products are legal and do not contribute to deforestation or forest degradation, requiring extensive documentation and traceability.
Implications for the Palm Oil Industry and Steps Toward Compliance
To meet the requirements of the EUDR, Palm Oil operators and traders who supply the relevant commodities or products in the EU must prove that the products are deforestation and degradation-free, legally produced, and covered by a due diligence statement. The statement includes three main components (Sustainalytics: 2024).
Traceability: Companies will be obliged to collect the geographical coordinates of the plots of land where the commodities were produced, using techniques such as remotely sensed information or satellite imagery to verify geolocation.3 This step must happen before products are placed in the market as part of a due diligence process.
Risk Assessments and Mitigation Measures: Using the traceability information, companies must carry out risk assessments of their operations. Furthermore, companies must introduce risk mitigation measures where relevant.
Due Diligence: Companies are required to annually report on their due diligence systems and the steps taken to ensure compliance with the regulation.
Recently, we participated in the Sustainable Palm Oil Dialogue (SPOD) 2024 in Europe, which successfully brought together stakeholders dedicated to advancing sustainability in the palm oil sector, including representatives from the European Commission. Organized by APAG Oleochemicals Europe, the EU Vegetable Oil and Protein meal Industry (FEDIOL), IDH, and the Roundtable on Sustainable Palm Oil (RSPO), the 2024 event focused on addressing the climate impacts of the palm oil sector and exploring effective solutions.
Under the theme "Inclusive Pathways for Climate-smart Solutions," the dialogue featured prominent speakers who discussed various strategies for both voluntary and mandatory initiatives to address climate change and improve the sector's overall positive impact. Discussions covered public-private partnerships, certification processes, sourcing policies, and legislation, all aimed at supporting emissions reduction and enhancing climate resilience through comprehensive landscape approaches.
With EUDR guidelines anticipated later this year, the event highlighted the need for ongoing cooperation between the private sector and regulatory bodies. Compliance requires adhering to specific regulations and practices, including due diligence reporting, supply chain mapping, geolocation data, deforestation-free, certification, supplier engagement, regular audits, risk assessment, and data verification.
Here are some key insights captured by Fanny Butler, our Head of Market, while representing us at the event:
Commitment to Reduce Deforestation: Companies and governments reinforced their zero-deforestation commitments, emphasizing both halting deforestation and restoring degraded lands. Stricter enforcement and new policies are essential.
Engaging Smallholders: Making sustainability profitable for smallholders is critical. Initiatives include technical assistance, financial support, access to premium markets, and ensuring inclusion and fairness in sustainability programs.
Traceability and Transparency: Fundamental pillars include satellite monitoring and detailed sourcing practice disclosures, ensuring compliance with sustainability standards.
Addressing Climate Change: Building resilience to climate impacts and reducing the carbon footprint of palm oil production through better land-use practices and emissions reduction is crucial for long-term sustainability.
Through our EUDR compliance solution, we navigate the palm oil supply chain complexities, becoming a global trusted partner for businesses to comply with this regulation.
Contact us today to discover how our customized solutions can enhance your palm oil supply chain, ensuring compliance and a genuine dedication to sustainability. Let's work together to positively impact the industry and contribute to a more sustainable world!
Resources:
United Nations Development Programme (UNDP). (2019). Indonesia at a glance: Country guide. Retrieved from https://www.undp.org/facs/publications/indonesia-glance-country-guide
Trase. (2020). Indonesia makes progress towards zero palm oil deforestation. Retrieved from https://trase.earth/insights/indonesia-makes-progress-towards-zero-palm-oil-deforestation
Mongabay. (2024). Palm oil deforestation makes comeback in Indonesia after decade-long slump. Retrieved from https://news.mongabay.com/2024/02/palm-oil-deforestation-makes-comeback-in-indonesia-after-decade-long-slump/
Sustainalytics. (2024). Navigating the EU regulation on deforestation-free products: 5 key EUDR questions answered about company readiness and investor risk. Retrieved from https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/navigating-the-eu-regulation-on-deforestation-free-products--5-key-eudr-questions-answered-about-company-readiness-and-investor-risk
Nusantara Atlas. (2023). 2023 marks a surge in palm oil expansion in Indonesia. Retrieved from https://nusantara-atlas.org/2023-marks-a-surge-in-palm-oil-expansion-in-indonesia/
Morgans, C. L., Jarvis, A., Potter, L., & Evers, S. (2022). Slowing deforestation in Indonesia follows declining oil palm expansion and lower oil prices. PLOS ONE, 17(4), e0266178. https://doi.org/10.1371/journal.pone.0266178
Writer: Kumara Anggita, Content Writer
Editor: Daniel Prasetyo, Head of PR and Corporate Communication
About the Writer
Kumara Anggita, serving as Koltiva's dedicated Content Writer, brings a wealth of experience from her six-year tenure in journalism in the fields of humanities and lifestyle, as well as her role as a writer in the tech industry. Her deep-rooted passion for gender equality and sustainability spurred her to enhance her reporting and storytelling skills through the EmPower Media Bootcamp by UN Women. Now, Kumara utilizes her platform to advocate for sustainable practices and gender equality through her compelling writing.
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This article provides a comprehensive overview of the palm oil industry's challenges and opportunities.